Hedge Fund Reader : CIBC accused of improper financing of hedge funds by SEC

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July 27, 2005

CIBC accused of improper financing of hedge funds by SEC

Canadian Imperial Bank of Commerce (CIBC) has been accused of financing hedge funds that engaged in improper mutual fund trading activities by US regulating authorities. CIBC will therefore pay SEC $125 million towards repayment of ill-gotten gains and as penalty. CIBC is Canada’s fifth largest bank. The bank in a statement said that the payments will be made from previous accruals that have been set aside. CIBC has been found guilty of financing hedge fund customers with financing used to trade mutual fund shares. This was done by indulging in practices like ‘late-trading’ and ‘market timing’ trading which makes use of zone-related pricing differences. They also financed customers in violation of margin and credit extension requirements. On receiving payment, SEC will pay the mutual funds and shareholders who have been harmed because of the practices of CIBC. The bank has also taken adequate actions by stopping finance for hedge funds that engage in market-timing and also removed the employees who were involved in this practice. Reuters.com reports:

“The SEC said the CIBC units helped hedge fund customers with financing used to trade mutual fund shares improperly, both by illegal late trading after hours, known as "late trading", and by questionable "market timing" trades that exploited time zone-related pricing differences.”

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July 27, 2005 in Gossip & Scandal | Permalink